Taxation Issues Related to COVID-19 Crisis

04 / 10 / 2020

By Patrick D. Owens and Rebecca M. Cerny

On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion economic stimulus, emergency assistance, and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic. The major highlights involve (i) direct payments to American taxpayers, (ii) small business relief, (iii) unemployment assistance, (iv) payroll tax provisions, and (v) use of retirement funds. The Congress is holding talks about expanding CARES Act by adding additional stimulus packages. The fuller scope and impact of CARES Act will be discussed at a later time when the Congress finalizes such plans.

On March 18, 2020, the Department of the Treasury and the Internal Revenue Service issued Notice 2020-17 providing relief under section 7508A(a) of the Internal Revenue Code (the Code) which postponed the due date for certain Federal income tax payments from April 15, 2020 to July 15, 2020. All taxpayers will have this additional time to file and make payments without interest or penalties. Illinois also approved a similar extension for state income taxes.

On March 18, 2020, President Trump also signed into law H.R. 6201, or the FamiliesFirst Coronavirus Response Act(FFCRA Act). It took effect on April 1, it is not retroactive, and it expires on December 31, 2020. FFCRA Act provides for employer tax credits to offset the costs associated with the paid sick leave and expanded family and medical leave component and family and medical leave components of the Act. A discussion of the Act’s employment issues is found further within this issue.

♦ Payroll Tax Credit: Most employers will receive a refundable tax credit equal to 100% of qualified sick leave wages and qualified family and medical leave wages paid by the employer for each calendar quarter through the end of 2020. The tax credit is allowed against some taxes under the Code.

♦ Credit Amounts: When an employee (i) is experiencing symptoms associated with COVID-19 and is seeking a medical diagnosis, or (ii) currently is or goes into isolation in accordance with the law or with direction from a health care provider, the amount of qualified sick leave wages taken into account for each employee is capped at $511 per day. When an employee is not experiencing symptoms but uses the sick leave (i) to care for an individual who has been ordered to self-quarantine or is experiencing symptoms and is seeking a medical diagnosis, or (ii) to provide care for a child whose school or daycare has closed, the amount of qualified sick leave wages taken into account cannot exceed $200 per employee per day. The number of days accounted for qualified sick leave shall not exceed the excess of 10 over the aggregate number of days taken into account for all proceeding calendar quarters.

♦ Credits for the Self-Employed: Eligible self-employed individuals who are unable to work can receive a credit equal to the lower of (i) 67% of their average daily self-employment income, or (ii) the credit amounts allowed for employees discussed above.

♦ Credit for Health Plan Expenses: The amount of paid sick leave and paid family leave credits may also be increased to include certain amounts employers pay for the employee’s health plan coverage while they are on leave.

♦ Excess Credit: The amount of the paid sick leave credit allowed for any calendar quarter cannot exceed the total employer payroll tax obligation on all wages for all employees. If the amount of the credit that would otherwise be allowed is so limited, the amount of the limitation is refundable to the employer.

♦ Other Limitations: Employers may not receive the tax credit if they also receive a credit for paid family and medical leave under the 2017 Tax Cuts and Jobs Act. Employers instead would have to include the credit in their gross income.